The meltdown of the once-powerful Eike Batista empire is the worst business news out of Latin America this year. (Photo: EBX)

The opening of Mexico's oil sector is the best business news out of Latin America this year. (Photo: Pemex)

Tuesday, December 17, 2013

Analysis

Latin America Business 2013: Best & Worst

The best and
worst news in Latin America business in 2013.

BY LATINVEX EDITORS

The best and worst events in Latin American business this
year, according to Latinvex editors.

THE BEST NEWS

Mexico EnergyReformMexico’s energy reform is clearly the best
business news out of Latin America this year. The reform could double foreign direct investment in the
country within the next few years and will place Mexico as one of the hot oil
and gas markets in the world. It will also help make state oil giant Pemex more
efficient. The reform has already led to a strong interest by foreign oil and
gas companies and more Mexico business for such law firms as Haynes and Boone, Holland
& Knight, Latham & Watkins, Milbank and Skadden.

Brazil
Airport AuctionsThe November 2013, $9 billion concession for
the airportsof Rio de Janeiro and
Belo Horizonte was the best business news out of Brazil this year. They follow
last year’sauction that awarded
rights to major airports in Sao Paulo and Brasilia for 24.5 billion reais -
more than four times the minimum bids, according to Reuters.
Mexico Telecom ReformThe telecom reform is the first real attempt to boost competition in the
sector.Mexican bank Banorte-Ixe
estimates the reforms will bring nearly 150 percent more in investments over
the next six years than were invested between 2007 and 2012.

BBVA
Seguridade IPODespite the economic slowdown in Brazil, the
initial public offering of Brazilian insurance and pension company BB
Seguridade Participações raised 11.48 billion reais ($5.74 billion) in April,
the highest amount in Latin America this year. To put that in perspective:
That’s more than Twitter and Hilton raised in their IPOs combined, which was
$4.5 billion.
Argentina-Repsol DealOn November 28, 2013, Spanish energy giant Repsol announced that it was
negotiating final terms of a compensation deal with the Argentine government to
end a 19-month conflict over the April 2012 confiscation of Repsol’s assets in
Argentine oil company YPF. The likely deal is already spurring more foreign
interest in Argentina’s energy sector, especially in shale gas.

THE WORST NEWS

The
Implosion of Eike Batista’s EmpireThe meltdown of former high-flying mogul Eike
Batista’s empire stands out as the worst business news out the region this
year. It includes the bankruptcy of oil company OGX, the largest everin Latin America, and ship builder OSX. The fall is dramatic because Batista, who at one point boasted he would surpass Mexican mogul Carlos Slim as Latin America's and the world's richest man, was seen as a symbol of the New and Successful Brazil. Bloomberghighlights the
rise and fall of the man who once was Brazil’s wealthiest.

Venezuela: From Very Bad to WorseJust when you thought things couldn’t get
worse, they did. After President Hugo Chavez died in March – after a 14-year
reign that ruined the economy-- his successor Nicolas
Maduro is now trying to outdo his hero. In addition to seizing control of
retail stores to force the prices to fall, he is planning laws that will impose
percentage caps on profits for companies operating in all sectors of the
economy. The result? Further shortages of everything from toilet paper to
food.All this despite $13.7 billion
revenues from the US alone during the first halfof the year. “The change of the risk-reward equation will most likely
force them not to renew their inventories and probably shut down their
businesses,” IHS Global Insight analyst Diego
Moya-Ocampos warned in a commentary. “During 14 years of Chávez rule, businesses had faced
increased expropriation risks and difficulties to repatriate funds, but never
limits on their profit margins, which had been the only driver to stay in
Venezuela.”
Brazil’s Failed PoliciesDespite a clear economic slowdown and widespread protests, the government
of President Dilma Rousseff is not
changing course in economic policy. Led by finance minister Guido Mantega, the Brazilian government
continues its statist policieswhich are hurting imports and investments while leading
to continued problems with inflation. Despite good intentions, central bank
president Alexandre Tombini has not
been able to keep price increases at a manageable level.The contrast with Mexico couldn’t be clearer,
especially now that that country has opened up its energy sector.

Argentina: More of the SamePoor Argentina, so far from its potential. Argentina marked another year
full of economic problems caused by its protectionist government. The Repsol
deal notwithstanding, Argentine President Cristina
Kirchner has not signaled any change in economic policy – on the contrary.
Her appointment of Marxist economist Axel
Kicillof as economy minister in November 2013 has increased investor
concerns even more. “He is convinced that businesspeople are suspect by
nature,” Argentina’s leading newspaper La
Nacion said in a profile.

Dominican
Republic vs Barrick GoldIn February 2013, Dominican president Danilo Medina shocked local business
leaders and foreign investors when he gave a state of the union speech
attacking Canada-based Barrick Gold, the largest foreign investor in the
country. Unless it agreed to renegotiate its contact with the government, he
would impose a new tax on the company, he threatened. “The market may be
starting to re-evaluate its mild preference for the ruling party after the
taste it seemed to show for resource nationalism this week,” the Financial Times wrote after
the speech. “This sends a very negative signal to current and potential
investors in the Dominican mining sector, as can be seen in the stock price of
Barrick and Goldcorp,” William
Malamud, executive vice president of the American
Chamber of Commerce in the Dominican Republic, told Latinvex. In the end – in August -- Barrick agreedto a new contract whereby it paid an additional $1.5
billion to the Dominican government. The Barrick issue is only the top of the
iceberg in Medina’s erratic economic policies, which includes stopping a key
extension of a massive metro line, attempting to impose taxes on 911 calls
(then backtracking amidst popular protests) and more. Thanks to his economic
policies of heavier taxes, GDP only grew 0.3 percent in the first quarter.
Medina is clearly trying to differentiate himself from his predecessor, Leonel Fernandez, who brought billions
of dollars in foreign investment to the country, negotiated the Barrick contract
and started the metro line.